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It's time to revamp Minnesota's sales tax

Governor Dayton and his staff are hard at work on a proposal to reform Minnesota's tax system. According to MPR, one idea that has received a lot of attention is finally broadening the tax base:

Dayton's point man on taxes, Revenue Commissioner Myron Frans, has been traveling the state to talk about potential changes that could be in the governor's tax reform proposal next month. Frans said a lot of people are interested in expanding the sales tax base and lowering the rate. The general sales tax rate currently stands at 6.875 percent.

"We have one of the smallest sales tax bases in the country right now, and certainly in this region," he said. "And at the same time, we have the highest sales tax rate in the five-state region."

Our sales tax exempts all services, such as auto repair, hair styling, and massage, to name just a few examples. At a time when Minnesotans' purchasing habits have shifted dramatically from goods to services, that has been disastrous for our state's revenues. It has also created a peculiar situation where Minnesotans' sales tax bills vary widely depending on the mix of goods and services they purchase.

The solution, as Frans said, is to broaden the sales tax base and lower the rate. According to an analysis by MN2020 -- admittedly a few years old by now -- raising taxes on services and lowering the rate from 6.875% to 5.0% would raise $1.2 billion per biennium, eliminating our deficit while making our sales tax more competitive with neighboring states.

Our sales tax is the product of a mid-20th-century economy, and it desperately needs to be revised. That revision would allow us to eliminate the deficit while lowering the tax rate, simply by extending taxes to purchases many people expect to pay taxes on, anyway. Expanding the sales tax base is a no brainer, and it should be a centerpiece of any tax reform plan.